Niseko for the long term

How Niseko looks like a great investment with a dose of sustainable development

by Simon Jackson, Project Director, RidgeRunner Architectural Design & Development

The rapid rise in Niseko real estate prices are being described as a bubble by some, but with the number of overseas visitors continuing to grow strongly, and large tracts of inexpensive land still available, the region’s investment potential looks strong if we develop sustainably.

It has become fashionable to write-off the surge in investment and property prices in Niseko as a short-lived bubble. The Australians have discovered a depressed Japanese ski area’s potential for winter sports, and, catching the investment communities in Sapporo and Tokyo by surprise, are earning very high investment returns through property development. Commentators assume this must be an unstainable blip, after all, aren’t the investment prospects for rural Japanese property about as good as a live squid’s in a sushi shop, what with Japan’s declining population? Wouldn’t we be better off catching the next fad by investing in a resort in Kyushu?

But when you look at the numbers, (disclosure: I’m developing property in Niseko)the investment prospects for Niseko look strong. Visitor numbers continue to grow despite minimal promotion. Development is in its infancy and property buyers are still early adopters. Headline price rises are largely confined to the small village of Hirafu and well located tracts of land are still available.

Any bubble is still a long way off and could be headed off entirely by embracing sustainable development practices. With a healthy dash of planning and foresight the resort could blossom into another Whistler or Val d’Isére where stable visitor numbers and summer tourism reinvigorate the local community and sustain price rises over decades. In the long term, the depressing effects of depopulation could be replaced by demand from overseas visitors. Niseko could be remembered not as another gold rush but as a model for the reinvigoration of rural Japan.

The end of the beginning

What is being taken for a Niseko property bubble are the Australian snow seekers who have transformed a near-deserted resort – Hirafu – into a vibrant enclave of overseas visitors, at least in the winter. They’ve bought land - the sites in the area owned by foreigners had risen to 249 by January 2006 from 11 sites in 2004 according to the Asahi Shimbun. Almost all of this land has been purchased in the village Hirafu, where prices now reach JPY400,000 per tsubo but interest is spreading to other areas such as Hanazono, Higashiyama, Izumikyo and Annupuri.

Source: RidgeRunner research, Kuchan-cho data, Niseko-cho dataSource: RidgeRunner research, Kuchan-cho data, Niseko-cho data

Rather than the sign of a bubble about to burst there’s every sign that this growth will continue. Overseas visitor numbers, currently the main driver for property prices, are continuing to grow. Kuchancho visitor data shows that non-Japanese visitors to the resort area have risen more than 11-fold over the past six years. Around 80% are Australians who have switched their annual ski-tour to Niseko from Whistler or Chamonix because Japan is in the same time zone and the snow is better. Hong Kong and Singapore visitors are also catching on, discovering a winter and pollution-free summer vacation is just a short-haul flight away. The buzz is now starting to attract attention in the US and Europe megamarkets.

Japan can be a tourist destination

Barring a global catastrophe, such as a big oil price hike, the visitors aren’t going away. The world is starting to realise that Japan is a fascinating country to visit and is no longer expensive but local business people have not yet woken up to the potential. Niseko receives its high level of visitation despite minimal visitor facilities and only recent tourist promotion activities by governmental and private organisations. The investment that is now accompanying overseas visits is likely to increase the standing of the area against other competing resorts globally, attract more visitors and increase investment in local real estate.

The attractions Niseko has to offer are not going away either. The area’s powder is among the best and most reliable in the world, with just 6% water snowfall, depths of up to 18 metres and an extended season lasting from late- November to early May. This provided great cover even during the 2006-07 season when the El Niño weather pattern caused winter snowfall to vanish from higher-altitude slopes in Europe. Visitors discover Japanese culture as well and are making side visits to local cultural centres of Sapporo, Otaru and Hakodate.

Froth rather than a bubble

Property prices remain favourable. Outside Hirafu, land prices in the local area remain extremely attractive. Even in Hirafu, valuations still look low compared to the stratospheric prices in visitor home cities of Sydney, Perth, Melbourne, Hong Kong and Singapore. Visitors also have the benefit of using their highly valued homes to raise yen finance to buy in Japan. The sliding yen can only make investment easier and the weak currency looks set to persist while interest rates remain high elsewhere in the world and weak in Japan.

What can ensure that Niseko is a longlasting phenomenon is developing the area so that local people share in its success. Prosperous local small businesses are the lifeblood of successful resorts by providing townships with unique character and the diverse range of activities of interest to tourists. Small businesses provide facilities that interest visitors in repeat trips and attract domestic as well as international tourists both of which support property prices.

Ensuring that local businesses prosper includes thoughtful property zoning and greater interest by developers with a vested interest in the prosperity of Japan. It also requires a more coordinated approach by government at all levels, thankfully now in the making and, in the current absence of a development plan, buyers voting with their feet to ensure developers build responsibly.

Snow blind investment

Development planning must play to the region’s strengths. In Hokkaido, and much of Japan, that means promoting and developing the area for summer rural tourism, including outdoor and agricultural tourism. Summer tourism is also where Niseko’s strengths truly lie. At present Niseko’s summer tourist facilities are almost completely underdeveloped but the area attracts just as many visitors in summer (more than 1.5 million annually) as it does in winter.

As well as spreading the benefits of development to the local community, summer rural tourism also reduces dependence on winter sports visitors. Models for this style of development have been successfully pursued in places such as New Zealand’s Queenstown, Canada’s Whistler and Isére in France.

Summer for all

With sustainable development practices and rural tourism, Niseko starts not only to look like a good long-term property investment but also as a potential model for reinvigorating other Japanese farming communities and rural property prices. The alternatives could be grim. Both the Economist and International Herald Tribune have reported on the town of Ogama in Ishikawa, which after shrinking to just eight residents, voted to sell its property to a Tokyo industrial waste company. The articles describe Ogawa as an “impossibly beautiful valley…a rare glimpse of a lost Japan” now to be buried under 150 metres of industrial ash.

The Japanese Government’s benign attitude to overseas investment may be rural Japan’s best hopes of countering the depressing effects of depopulation, something that Terrie Lloyd pointed out in his 6 May 2007 newsletter. If an enclave of overseas visitors can successfully take root in Hokkaido and reinvigorate Niseko, why not allow sun-seeking middle-class Asians from Hong Kong and China to do the same elsewhere? By developing sustainably and sharing the benefits with local communities, we’ll give the Japanese government no reason to change its policy.

Simon Jackson is the project director of RidgeRunner Architectural Design & Development, a full-service property development and real estate company operated by a consortium of Hokkaido companies. He is also the president of NorthpointNetwork, an international trading and consulting company with business operations supporting the Sakhalin Island Oil projects.

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